East Africa: Land of New Riches

October 31, 2012

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Foreign direct investment in East Africa has more than doubled in the past ten years totaling $1.7 billion in 2011. The prospect of huge oil and gas discoveries and mining and infrastructure opportunities has businesses across the GCC scrambling to invest in the once troubled region.

Foreign direct investment in East Africa has more than doubled in the past ten years totaling $1.7 billion in 2011. The prospect of huge oil and gas discoveries and mining and infrastructure opportunities has businesses across the GCC scrambling to invest in the once troubled region.

East Africa recently made the biggest oil and natural-gas discoveries in a decade, luring investors from steel billionaire Lakshmi Mittal and Ireland’s Tullow Oil, to Royal Dutch Shell and Abu Dhabi’s Mubadala Oil and Gas. Last October, Mubadala’s energy unit spent $23 million for one-fifth of a block off Tanzania’s coast, but analysts say oil may not be the reason behind the investment.

“Although oil itself hasn’t been discovered in Tanzania, there are large reserves of natural gas, and that’s what is driving interest in the country,” Patrick Mair, analyst for sub-Saharan African at Control Risks, explained. Considering the UAE’s lack of indigenous gas and its growing need for the hydrocarbon, this may well be the case.

In March this year, five months after Mubadala’s investment, Tanzania announced the presence of nearly 60 trillion cubic feet of natural gas. This is in addition to the numerous gas deposits found in Songo Songo and Mnazi in the south. Tanzania is now weighing plans for a liquefied natural gas plant, while China is loaning the country $1 billion to build a gas pipeline.

Meanwhile, in Uganda, Tullow Oil found 1.1 billion confirmed barrels of oil and believes there are 1.4 billion left to find. By early 2013, Uganda will auction four blocks for oil exploration, as it establishes new progressive laws.

Oil was also discovered in Kenya when Tullow struck 20 metres of crude after drilling its first well. “It’s the beginning of a long journey to make our country an oil producer, which typically takes in excess of three years”, president Mwai Kibaki said.

Unlike Uganda, Kenya is not landlocked. This means if the country finally discovers commercial oil, it could export it like Ghana does, or refine it at its Mombasa refinery. However, the rest of the EAC (The East African Community is an intergovernmental organisation of the Republics of Kenya, Uganda, Tanzania, Rwanda and Burundi established in 2000) do not have a refinery, and member states are considering a joint venture to build one.

Meanwhile, neighbouring Tanzania believes it has unexplored oil, and plans to hold a licensing round for 16 offshore blocks starting in September this year. Details of the plans will be revealed this month and the process is expected to close in 2013.

The GCC’s four OPEC members (Saudi Arabia, UAE, Kuwait and Qatar) are obliged to restrict their oil output in accordance with the organisation’s commitments, which makes East Africa an ideal gateway for developing and exporting the newfound oil and gas.

We all like to do business in easy environments, so who are the guys who like the challenge?

All that glitters may be gold

East Africa is blessed with almost every mineral known to exist in earth; from gold, diamond and gemstones, to the more recently discovered nickel, copper, uranium, titanium, cobalt and platinum.

Tanzania, the world’s third largest producer of gold, is also the sole producer of Tanzanite – a mineral 1,000 times more rare than diamonds. The worldwide market for rough and polished tanzanite is estimated at around US$100 million and $200 per annum respectively, signalling massive opportunities for global miners.

“Africa is like a goldmine in terms of what’s out there. There are major investments that have gone toward Africa and more will come”, UAE Minister of Foreign Trade Sheikha Lubna al Qasemi recently told a conference in Abu Dhabi.

One of the latest players to delve into Africa’s mines is UAE business tycoon Mohamed Alabbar, away from his role as chairman of Emaar Properties, Alabbar runs Africa Middle East Resources (AMER). The Johannesburg-based company aims to find natural resources for key mining and energy stakeholders, with emphasis on base and precious metals, as well as oil and gas.

“Africa is neglected…the size of Africa with one billion people, 300 million middle income, fabulous opportunities, welcoming government, but unfortunately we all like to do business in easy environments, so who are the guys who like the challenge?” Alabbar questioned.

Developing the tourism sector

Tourism in East Africa is a highly attractive and profit-generating market: Dubai World tapped into this through the redevelopment of a lodge in Rwanda near Volcanoes National Park, home to one of the world’s last mountain gorilla bands, and by investing in a $25 million eco-lodge at Nyungwe Forest National Park, that became Rwanda’s second five-star hotel when it opened last summer.

Moreover, the Hyatt Regency Dar es Salaam Hotel in Kilimanjaro, one of the country’s oldest landmarks, is owned by Dubai-based ASB Ltd, who is also redeveloping the historic Seventy Seven Hotel in Arusha.

In the finance sector, Invest-Abu Dhabi’s Africa fund bought into the public offering of Rwanda’s Bank of Kigali. “The fund, which will deploy $75 million invested by the two partners, is looking to participate in initial public offerings, take stakes in unlisted companies, and negotiate block share purchases in listed companies,” Invest AD said in a statement.

Etihad Airways and Emirates Airlines have launched direct flights to serve the expanding interest in Africa.